On August 17th 2006, President Bush signed into law the Pension Protection Act of 2006, a law with potentially important changes regarding tax deductions for monetary and materials donations. If you are claiming tax deductions based on your philanthropic giving, ask your accountant or tax-preparer if he or she is aware of the new rules. If you use tax-preparation software, be sure that it is updated to reflect the new tax changes. Keep careful records and receipts of all your monetary and material donations. Here are highlights of some of the major changes:
- The IRS will require receipts for monetary gifts. In the past, receipts were required only for gifts over $250. Cancelled checks can be used as receipts for gifts under $250. Many charities are already preparing to help donors by sending receipts that will state the amount and date of the gift no matter the size of the contribution. Always save a receipt for your monetary donations. This provision went into effect in 2007.
- The IRS decided to aggressively prevent attempts to claim excessive deductions for the donation of material goods. The Pension Protection Act of 2006 disallowed deductions for donated clothing or household items that are not “in good used condition or better.” The same law also states that deduction can be denied if the objects have “minimal monetary value.” The new law is intended to prevent people from donating materials that are of no use or value to charities. You may see changes in the way that material goods are received. Don’t be surprised if charities ask you new questions about the value of the items you donate. Obtain receipts if you plan to request a tax deduction. This provision went into effect when the law was signed.
- People who are 70½-years-old and older are eligible under the new law to make tax-free donations from their individual retirement accounts. There are limits for the amount of donation and the type of charity you can donate to, so find out more from a tax professional or other knowledgeable advisors.
Detailed information is available online at the IRS Web site.